UNITED Overseas Bank (UOB) is diving into data to move the dial in credit underwriting for small businesses in Asean.
Its ongoing work over two years in applying data analytics shows it has been able to cut the turnaround time in a small business loan application by more than half.
Upon full submission of the required documents by the client, the analytics-enabled credit engine can process each application in less than one business day.
Since the implementation of the enhanced credit underwriting engine, the bank has also registered a 50 per cent fall in the default rate of its small business loans. The bank declined to say what is the current default rate, or the total volume of loans on which such analytics has been applied.
The enhanced credit engine - which was developed in-house - was first rolled out in Thailand in 2015. The analytics-enabled engine has since been rolled out in four other Asean markets: Singapore, Indonesia, Malaysia, and Vietnam.
UOB said it combines the existing sources of information from the bank with new pools of data, such as those relating to the company's day-to-day operations.
The bank looks at the performance of the industry as a whole, and whether the borrower has succession plans in place. For some segments, such as e-commerce merchants, this would include their customer ratings. The engine also analyses information from government databases.
Lawrence Loh, head of group business banking, UOB, said one of the biggest barriers to financing small businesses is the availability of data.
"For many of these businesses, they may not keep a proper record of their accounts or have audited financial statements, making it difficult to assess their credit rating accurately," he said in a press statement.
"By redesigning the credit underwriting engine, we can now process loan requests from small businesses with greater speed and accuracy, increasing productivity and reducing the turnaround time for customers."
This will also cut the number of steps required in the application, providing customers with a "more frictionless experience", said Mr Loh.
A recent study done by UOB, EY, and Dun & Bradstreet showed that 65.2 per cent of small businesses in Asean found it a challenge to get access to financing. More than three-quarters of the 1,235 companies surveyed said that they are keen to raise additional working capital or cash flow for expansion.
And despite operating on tight margins, small-and-medium enterprises (SMEs) favour transaction speed and using an established financial brand over cost when it comes to selecting their bank.
This comes as on average, some loan approvals for SMEs can take anywhere from 15 days to several weeks, the study showed.
Against this backdrop, SMEs have also signalled more willingness to try out alternative lenders, such as crowdfunding platforms.
Just over half of Asean SMEs surveyed expect revenue growth in fiscal 2018, with 25 per cent projecting a double-digit expansion in revenue.